Mike Gregoire, CA Technologies Chief Executive Officer, said:
"I am pleased with the progress we have demonstrated this quarter. Our new sales performance reflects the continued improvements we are making in both our products as well as our sales execution. New sales were up more than forty percent. This is an indicator of the great traction our products are experiencing and CA's value in today's application economy. In addition, our renewal yields were the best in recent history.
“We recognize that there is still work to do in order to realize the kind of growth that CA can achieve. CA remains focused on product quality, product innovation, overall execution and fiscal discipline.
“Our strategy continues to stress organic innovation, complemented by targeted investments that give us competitive advantage.
“Looking ahead, we are encouraged by the breadth of opportunities in front of us. That said, for the rest of the fiscal year, we expect results to be weighted towards the fourth quarter.”
REVENUE AND BOOKINGS
- Total revenue declined primarily as a result of an unfavorable foreign exchange effect of $67 million. Our second quarter fiscal 2016 acquisitions of Rally Software Development Corp. and Xceedium, Inc., contributed approximately two points of revenue for the quarter.
- Total bookings increased primarily due to a renewal with a large system integrator in excess of $500 million and, to a lesser extent, an increase in new product sales and Mainframe Solutions renewals. Even without the large system integrator deal, there was a significant increase in total bookings.
- The Company executed a total of 11 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $887 million. During the second quarter of fiscal 2015, the Company executed a total of 6 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $217 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 4.46 years, compared with 3.10 years for the same period in fiscal 2015.
EXPENSES AND MARGIN
- GAAP second quarter operating expenses decreased as a result of a favorable foreign exchange effect and a decrease in amortization expenses as a result of an impairment charge of $13 million recorded in the second quarter of fiscal 2015. These favorable effects were partially offset against costs from our second quarter fiscal 2016 acquisitions.
- Non-GAAP second quarter operating expenses were generally consistent as a result of a favorable foreign exchange effect, offset against costs from our second quarter fiscal 2016 acquisitions.
- GAAP and Non-GAAP EPS in the second quarter of fiscal 2016 declined primarily due to an unfavorable foreign exchange effect and an increase in expenses from our second quarter fiscal 2016 acquisitions.
SELECTED HIGHLIGHTS FROM THE QUARTER
- Customer traction for CA Technologies gained this quarter include:
- A major competitive win at a large Canadian bank that dramatically expands CA's footprint.
- A large engagement at one of the world's largest automakers that represents an enterprise-wide expansion of our relationship and involves a range of our products.
- Another notable deal was a competitive win at a leading athletic apparel company that is transforming its brand with a leading digital health program.
- A particularly large upgrade order from a global leader in networking routers and switches, which reflects the success of Rally's land-and-expand strategy.
- Solutions Leadership and Recognition during the quarter:
- CA made available for general delivery the first release of a bi-directionally integrated, combined Rally and CA Project and Portfolio Management (PPM) solution.
- The release of CA PPM 14.3 last month allows customers to glean powerful management insights from data across all platforms and devices, including mobile.
- CA’s Security business had a very strong performance with the close of multiple, six figure transactions across a range of vertical industries.
- Gartner has rated CA Technologies with an overall "Positive" rating in its August 2015 Vendor Rating report. (1)
- Mainframe Solutions revenue declined primarily due to an unfavorable foreign exchange effect and, to a lesser extent, insufficient revenue from prior period new sales to offset the decline in revenue contribution from renewals. Operating margin was consistent compared with the year-ago period.
- Enterprise Solutions revenue declined due to an unfavorable foreign exchange effect. Excluding the unfavorable effect of foreign exchange, Enterprise Solutions revenue would have increased as a result of additional revenue associated with our second quarter fiscal 2016 acquisitions. Operating margin decreased 10% primarily due to our second quarter fiscal 2016 acquisitions.
- Services revenue decreased primarily due to an unfavorable foreign exchange effect and, to a lesser extent, lower professional services engagements in fiscal 2015. Operating margin increased primarily due to a decrease in personnel-related costs as a result of prior period severance actions.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the second quarter of fiscal 2016 was $43 million, versus $66 million in the year ago period. Cash flow from operations decreased compared with the year-ago period primarily due to a decrease in cash collections, as a result of lower single installment collections and an unfavorable effect of foreign exchange, offset by a decline in vendor disbursements and payroll, which is due to a favorable foreign exchange effect, and a decrease in income tax payments.
- Cash, cash equivalents and investments at September 30, 2015 were $2.458 billion.
- With $1.657 billion in total debt outstanding and $139 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $662 million.
- In the second quarter of fiscal 2016, the Company repurchased 2.3 million shares of common stock for $65 million.
- As of September 30, 2015, the Company is currently authorized to purchase $670 million of its common stock under its current stock repurchase program.
- The Company distributed $110 million in dividends to shareholders.
- The Company’s outstanding share count at September 30, 2015 was 434 million.
OUTLOOK FOR FISCAL YEAR 2016
The Company updated its fiscal 2016 outlook for GAAP diluted earnings per share from continuing operations. The following outlook contains "forward-looking statements" (as defined below).
The Company expects the following:
- Total revenue to change in a range of minus 1 percent to flat in constant currency, unchanged from previous guidance. The Company currently expects total revenue to be at the lower end of this range due primarily to the greater portion of new sales bookings recognized ratably in the first quarter and second quarters, compared to historical trends. At September 30, 2015 exchange rates, this translates to reported revenue of $4.00 billion to $4.04 billion.
- GAAP diluted earnings per share from continuing operations to increase in a range of 7 percent to 11 percent in constant currency. Previous guidance was to increase in a range of 6 percent to 10 percent in constant currency. At September 30, 2015 exchange rates, this translates to reported GAAP diluted earnings per share from continuing operations of $1.70 to $1.76.
- Non-GAAP diluted earnings per share from continuing operations to increase in a range of 2 percent to 5 percent in constant currency, unchanged from previous guidance. At September 30, 2015 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.34 to $2.40.
- Cash flow from continuing operations to increase in the range of 2 percent to 7 percent in constant currency, unchanged from previous guidance. At September 30, 2015 exchange rates, this translates to reported cash flow from continuing operations of $0.97 billion to $1.02 billion.
This outlook assumes no further material acquisitions and a partial currency hedge of operating income. The Company expects a full-year GAAP operating margin of 28 percent and non-GAAP operating margin of 38 percent, unchanged from previous guidance.
The Company also expects a full-year GAAP and non-GAAP effective tax rate of between 28 percent and 29 percent, unchanged from previous guidance.
The Company anticipates approximately 431 million shares outstanding at fiscal 2016 year-end and weighted average diluted shares outstanding of approximately 436 million for the fiscal year.
This news release and the accompanying tables should be read in conjunction with additional content that is available on the Company’s website, including a supplemental financial package, as well as a conference call and webcast that the Company will host at 5:00 p.m. ET today to discuss its unaudited second quarter results. The webcast will be archived on the website. Individuals can access the webcast, as well as the press release and supplemental financial information at http://ca.com/invest or can listen to the call at 1-877-561-27481-877-561-2748 FREE. The international participant number is 1-720-545-00441-720-545-0044.
(1) Gartner, Inc., “ Vendor Rating: CA Technologies, David Cappuccio, et.al, 31 August 2015
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.